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Monday, Oct. 9, 2006

JAPANESE PERSPECTIVES

Abe must speed up reforms, forge new model of growth


Newly-elected Prime Minister Shinzo Abe, the nation's first leader born after World War II, has launched his Cabinet with veteran lawmakers capable of taking the lead -- rather than relying on the bureaucracy -- in the implementation of fresh policy initiatives. Keidanren fully supports Abe's determination to lead the Japanese economy to further growth and prosperity through innovations.

The aging of the Japanese population is accelerating and the birthrate is on the decline. The new administration needs to quickly establish a new Japanese growth model that enables sustained economic growth despite a shrinking population.

The vigor of an economy derives from the free activities of individuals and corporations. During the five years of reforms under Abe's predecessor, Junichiro Koizumi, the Japanese economy survived serious deflationary pressures and regained its original strength. This was made possible by private-sector companies' all-out streamlining efforts, combined with the government's drive for structural reforms to support those efforts.

We want the new Abe administration to accelerate reforms so that the Japanese economy can realize its full potential. It is important to ensure sustainability of the government finances and social security programs, so are efforts to prevent the economic gaps among the Japanese from being perpetuated. These efforts are only possible if there is stable economic growth.

First, the government should implement measures to promote innovations and raise productivity, such as increased public investments on basic research and major research and development projects, and lowering corporate tax rates that are still high compared with many other industrialized economies.

Equally important is the international trade and diplomatic strategies that support mutually-beneficial ties between Japan and the rest of Asia, which continues to enjoy rapid growth. So far, Japan has concluded economic partnership agreements with some Asian countries including Singapore and Malaysia, but the efforts must pick up speed. Japan should conclude an EPA with East Asia as a whole by 2011.

Also needed are the reforms to correct the imbalances among regions within the country. Regional economies should be given greater autonomy to revitalize themselves. The government should push for decentralization of administrative powers and redistribution of national and local finances. Creation of larger regional authorities that encompass several prefectures should be put on the political agenda.

Japan cannot waste much time in securing medium- to longer-term sustainability of public finances and social security programs. The Abe Cabinet must steadily implement spending cuts that were pledged in the government's basic policy on fiscal management and structural reforms spelled out in July.

At the beginning of 2007, Keidanren plans to release a new vision by its chairman, Fujio Mitarai, to make Japan "the land of hope" over the next decade. The business community plans to cooperate with government initiatives and also make its own efforts to create a nation where people can have a hope for its future.

Yoshio Nakamura is director general of the Japan Business Federation (Nippon Keidanren).


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